What Will Drive United’s Near Term Growth?

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United Airlines Holdings

United Continental (NYSE:UAL) has had a pretty good year so far. In both reported quarters, the company managed to post better-than-expected figures, consistently raising the top and bottom lines, while comfortably beating the analyst consensus estimates. We expect this momentum to carry forward through the remainder of the year on higher overall demand and a potentially easier pricing climate. Further, the company decided to raise its full year earnings guidance. This comes at a time when most of its competitors have decided to reduce guidance on increased fuel prices.

We have created an interactive dashboard What Is The Outlook For UAL on the company’s expected performance in 2019. You can adjust the revenue and margin drivers to see the impact on the company’s overall revenues and earnings.

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As mentioned above, one of the biggest concerns plaguing airlines at the moment is the rising fuel prices. Since fuel costs are the major operating costs of an airline, a marginal change in crude oil prices can significantly impact its operating expenses, and, in turn, its earnings.

While most of its competitors buckle under pressure from higher fuel costs, United seems to be holding its own. It decided to increase its earnings forecast for the full year despite an average 60% increase in fuel expenses. This, according to the management, is only possible because all of the company’s growth initiatives seem to be working as expected. Additionally, it believes the second half of  the year to realize more in benefits, which could spill into 2019 as well.

Further, United, like the others, has decided to increase its capacity in order to maintain its share in the market. In the latest quarter, it decided to revise the capacity buildup to come in around 5% over the remainder of the year, which is still high, but lower than previously anticipated. This comes as some relief for investors who worried that strong increases in seat counts coupled with modest jumps in revenue could seriously challenge United at a stage where it faces higher overall costs.

In general, the company put into place certain measures in order to improve capacity without compromising on efficiency. In this respect, the airline launched quite a few initiatives around segmentation, loyalty programs, and revenue management that should help boost sales over the coming years. We expect to see an impact from these initiatives as early as later this year.

These strategies, if properly executed, are expected to also help the company’s PRASM figures, which we believe should see increases over the coming quarters on higher air travel demand.

Overall, it seems as though the company is quite well off at the moment, with brighter days ahead. With controlled costs and improved growth initiatives we see very good financial potential at United going forward.

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